Lower-Middle Income Countries

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Countries in the lower-middle income category have sufficient income to lift much of the population above subsistence level, but only some countries have managed to do so – in many cases, inequality of wealth and income remains a significant challenge. These countries must work both on enhancing productivity to create conditions for growth, and on ensuring that growth is broad-based and inclusive. This category includes several South Asian economies, and a number of countries from sub-Saharan Africa and the Middle East and North Africa (MENA) region.

Egypt has a score of 2.94, placing it 73rd among the 79 developing economies on the IDI. The country struggles with many aspects of inclusive growth. Over five years, its GDP per capita and labor productivity have barely grown. Income and wealth inequality remain high. Unemployment is also high, especially among the young, and the dependency ratio is increasing, meaning that more and more people who are not in the workforce need to be supported by ever fewer workers. Egypt also suffers from an extremely high debt-to-GDP ratio and high carbon intensity of GDP, placing the future at risk. The Framework indicates that the education system does not reach a sufficient proportion of the population and that quality is lacking. Despite a history of entrepreneurship, business and employment creation remain constrained by insufficient finance, poor transport infrastructure, and pervasive corruption. Many workers are in vulnerable employment situations, often in the informal economy.

El Salvador is ranked 41st out of the 79 developing countries on the IDI with a score of 4.00. Even though inequality and poverty rates are lower than many peers, debt levels have been on the rise, putting future growth at risk. The Framework indicators show that to further enhance inclusive growth, it will be critical to upgrade education and provide better healthcare. El Salvador must also urgently work toward increasing the dynamism of its economy, for example by streamlining bureaucratic procedures and improving access to financing.

Ghana’s IDI score of 3.50 places it 55th out of 79 developing economies. It has run up an exceedingly high debt-to-GDP ratio in recent years, continues to have a very high poverty rate, and is not sufficiently protecting its natural capital. On the other hand, labor productivity and employment, while still somewhat low, have grown over the last five years. The Framework indicates, however, that youth unemployment remains quite high, pointing to the need for further improving the quality of education as well as the equity of outcomes across socioeconomic backgrounds. Ghana must improve its infrastructure and healthcare system. The country has the advantage of relatively low corruption compared with its peers, and the recently-elected government has vowed to tackle it further. Reductions in the administrative burden on entrepreneurs would also significantly improve the business environment.

India, with a score of only 3.38, ranks 60th among the 79 developing economies on the IDI, despite the fact that its growth in GDP per capita is among the top 10 and labor productivity growth has been strong. Poverty has also been falling, albeit from a high level. On the other hand, its debt-to-GDP ratio is high, raising some questions about the sustainability of government spending. With regard to Framework indicators, educational enrollment rates are relatively low across all levels, and quality varies greatly, leading to notable differences in performance among students from different socioeconomic backgrounds. While unemployment is not as high as in some other countries, the labor force participation rate is low, the informal economy is large, and many workers are in vulnerable employment situations with little room for social mobility. A more progressive tax system would help raise capital for expenditure on infrastructure, healthcare, basic services, and education. India scores well in terms of access to finance for business development and real economy investment. However, new business creation continues to be held back by corruption, underdeveloped infrastructure, and the large administrative burden involved in starting and running companies.

Indonesia has a relatively high IDI score of 4.29, placing it 22nd on the Index. Its performance has benefited from good labor productivity growth and a reduction in poverty, though both income and wealth inequality are high. The country has a low debt-to-GDP ratio compared with its peers. As per the Framework indicators, Indonesia could raise needed revenues for building infrastructure and providing basic services by making its tax system more progressive. The education system offers good quality, though enrollment levels need to be raised. Unemployment is low overall, but youth unemployment is over 30% and women’s participation in the labor force remains low, limiting the talent available in the workforce.

The Islamic Republic of Iran has seen a decline in the inclusiveness of growth, losing over 1.54% in its score in the last five years, but still ranks 21st among the 79 developing economies on the IDI. The country has strong labor productivity relative to its peers, as well as high healthy-life expectancy, low dependency ratio, and manageable debt-to-GDP. The decline in score has mainly been attributed to drops in GDP per capita and labor productivity, as well as low employment and rising wealth inequality. The middle class remains comparatively large, but has been shrinking. Employment levels are extremely low (rank 76) and Iran’s economy has one of the highest levels of carbon intensity in the world (rank 75). The Framework shows that in terms of addressing some of its challenges, Iran makes good use of fiscal transfers for more equitable outcomes, with a progressive taxation system that provides resources needed for the country’s relatively high spending on social protection. Priority areas include tackling gender gaps in education, employment, and health; and formalizing informal economic activity, for example by making it easier to start and grow a business.

Jordan ranks 54th among 79 developing economies with an IDI score of 3.50. The country’s employment rate is among the lowest globally, and joblessness reaches almost 30% among the youth. Jordan’s labor productivity and median living standards are comparatively high; and income and wealth inequality are comparatively low. With regard to the areas measured in the Framework, infrastructure is well-developed; and basic services such as sanitation and healthcare are relatively good. On the other hand, the education system is not accessible for sufficient numbers of young people, and the country should make efforts to bring more female talent into the workforce. In addition, the tax system would be more supportive of inclusive growth if it were more progressive.

Nigeria has the resources and entrepreneurial environment to build an inclusive economy, but has not yet done so, ranking 71st of 79 developing economies on the IDI, with its score on a downward trend over the past five years. Life expectancy is under 48 years – one of the lowest among all countries covered – the poverty rate is high, and living standards are among the lowest in developing economies. Nigeria’s dependency ratio is in the bottom 10, with too few workers supporting too many people not in the workforce. Perhaps not surprisingly, the country’s economy is becoming highly carbon intensive. The Framework shows that Nigeria faces a number of challenges in addressing these issues. Educational enrollment and quality are poor, and participation in the labor force is quite low, even as the informal sector is large. The country also suffers from poor infrastructure and a lack of basic services, with corruption and diversion of public funds making it difficult for the government to deliver public goods. Despite a relatively entrepreneurial environment, Nigeria is not yet able to ensure growth that is sustainable and broad-based.

The Philippines has seen a mild decline in its IDI score over the past five years, with a score of 4.00 placing it 40th among 79 developing economies. GDP per capita and labor productivity are both growing, but poverty and wealth inequalities remain high. The Framework shows that access to education has widened, but the quality of education must be improved. The country could reduce its high levels of inequality by upgrading infrastructure and improving provision of basic services. Corruption and security concerns are also highly problematic for the proper functioning of the economy and for business creation, which is also hindered by burdensome red tape.

Thailand has seen a mild improvement in the inclusiveness of its growth and development, with a score of 4.42 placing it 12th on the IDI. The country has some good foundations in the shape of high employment, low poverty, and good living standards, though wealth inequality is increasing, indicating room to improve market mechanisms for delivering inclusion. The Framework indicates that while the quality of education has declined somewhat, it remains good relative to peers, with high enrollment rates. Female labor force participation is also high, though paid maternity leave could be extended. Efforts should be made to encourage greater entrepreneurship and business creation in order to bring workers from the informal economy into the formal sector. Doing so would widen the tax base that would allow the country to reinforce its social protection system.

Tunisia ranks 44th on the IDI, having seen a decline over the last five years. It ranks well on the equity pillar, given its relatively good outcomes in the areas of poverty elimination, reduction of income and wealth inequality, and improvement in median living standards. On the other hand, its employment rate is low (41.3%), and its adjusted net savings rate signals a need to invest more in the future. The Framework indicates that Tunisia’s basic services, in particular its healthcare system, are relatively good for a lower-middle income country. Yet the education system is not delivering sufficiently high-quality outcomes and is failing to reach many young people. This helps to explain why youth unemployment is high. The informal sector remains large, and Tunisia needs to do more to unleash markets to create new businesses and jobs.

Ukraine ranks 47th on the IDI, scoring measurably lower than it did five years ago. Continuing hostilities in the east of the country are possibly rolling back some progress, as they disproportionately affect the least well-off, driving talented people to leave the country for opportunities elsewhere. Ukraine has a low dependency ratio (43.3%), but performs poorly on all other measures of intergenerational equity. It also has one of the highest levels of wealth inequality of all developing countries. On the positive side, it has low income inequality and poverty. The Framework indicates that its education system is supportive of inclusive growth, with high enrollment rates and equitable outcomes for students across socioeconomic levels. The middle class remains large, and good healthcare and unemployment benefits help Ukraine rank first in its income group on social protection. Priorities should include improvement in vocational training, reduction of the administrative burden on new business creation, expansion of finance for entrepreneurs, and enhanced focus on tackling corruption.

Vietnam ranks 25th on the IDI, its performance having deteriorated slightly over the last five years despite a significant reduction in poverty over that time. It benefits from a low dependency ratio and relatively high employment, though youth unemployment is somewhat higher, pointing to the need to improve the quality of education and increase enrollment at all levels. The Framework indicates that it is harder to start a business or enforce a contract in Vietnam than in peer economies, and an underdeveloped financial sector makes it difficult for businesses to obtain financing. Improvements are needed in infrastructure and basic services such as healthcare, where out-of-pocket expenses remain high. Police services also need to be reformed to better tackle security challenges.